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2025 Canadian Federal Budget Highlights for Individuals and Small Business

On Tuesday November 4, the Federal government tabled their 2025 fiscal budget. The focus of this budget is centred on a “generational” investment in Canada’s future designed to offset the impact of trade tariffs, help reinvigorate the economy and set the course for future growth through investments in key infrastructure and trans-national projects. For individuals, Canada’s 2025 budget includes a reduction in the lowest federal income tax rate from 15% to 14% as of July 1, 2025, cancellation of the consumer carbon price effective April 1, 2025, and a temporary tax credit for personal support workers. For small businesses, key measures include immediate expensing for certain manufacturing and processing buildings, enhanced credits for scientific research and experimental development (SR&ED), and confirmation of tax-free status for the Canada Carbon Rebate for Small Businesses.

Individuals

  • Income Tax Reduction: The lowest federal income tax bracket rate is being lowered from 15% to 14% as of July 1, 2025. This change creates a blended rate of approximately 14.5% for the 2025 tax year.
  • Carbon Price Elimination: The consumer carbon price was cancelled as of April 1, 2025, leading to lower gasoline prices in provinces where it was in effect. A final Canada Carbon Rebate payment was issued in April 2025.
  • Tax Credit for Personal Support Workers: A temporary refundable tax credit is being introduced for eligible personal support workers, equal to 5% of eligible earnings up to a maximum credit of $1,100 per year, for the 2026 to 2030 taxation years. This credit will not be available for work performed in B.C, Newfoundland and Labrador, and the Northwest Territories since these jurisdictions have signed an agreement with the Federal government who is providing direct funding to increase personal support workers’ wages.
  • Automatic Tax Filing: The Canada Revenue Agency (CRA) will be given the discretionary authority to automatically file tax returns for a targeted group of low-income individuals with simple tax situations, to assist them in obtaining the refundable tax credits to which they are entitled. Implementation is planned to start with the 2025 tax year.
  • Capital Gains Inclusion Rate: The budget cancels the previously proposed increase to the capital gains inclusion rate. The rate remains at 50% for individuals.
  • Lifetime Capital Gains Exemption (LCGE): The LCGE has increased to $1.25 million for the sale of qualified small business shares and farming or fishing property, effective June 25, 2024.
  • Underused Housing Tax (UHT) Elimination: The Underused Housing Tax is eliminated for the 2025 calendar year and beyond, though filing obligations for 2022–2024 still apply.

Small businesses

  • Immediate Expensing: Businesses can claim a 100% deduction for the cost of eligible manufacturing and processing buildings in the first year they are used, for assets acquired on or after Budget Day and used before 2030.
  • Tax Rates: The 2025 budget does not propose changes to general corporate or small business corporate tax rates.
  • Enhanced SR&ED Credit: The budget confirmed the August 2024 proposal to increase the expenditure limit from $3M to $4.5M and increased the clawback threshold of said limit from $15M of taxable capital to $75M. The 2025 budget proposes to further increase the spending cap on which the enhanced 35% tax credit can be earned, raising it from $4.5 million to $6 million. This measure would apply to taxation years beginning on or after December 16, 2024 (i.e., the date of the 2024 Fall Economic Statement).

    An elective pre-claim approval process is also being introduced for technical eligibility.
  • Canada Carbon Rebate for Small Businesses: The tax-free status of the Canada Carbon Rebate for Small Businesses has been confirmed.
  • Critical Mineral Tax Credits: The list of minerals eligible for the Critical Mineral Exploration Tax Credit and the Clean Technology Manufacturing Investment Tax Credit has been expanded.
  • International Transfer Pricing Rules: Significant changes are proposed to align Canada’s transfer pricing rules with international consensus, which may impact multinational enterprises.
  • GST/HST on New Homes for First-Time Buyers: The GST is eliminated for first-time buyers on newly constructed homes up to $1 million and reduced on homes between $1 million and $1.5 million.
  • CEI Cancelled: The previously announced Canadian Entrepreneurs’ Incentive (CEI) is cancelled.
  • Support for Union Training: Funding is allocated to expand the Union Training and Innovation Program, supporting apprenticeship training in skilled trades.

This information is meant for general informational purposes. For further budget details or to enquire about Padgett’s tax, accounting, payroll and advisory services, please contact your nearest Padgett representative.

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